Kresge survey highlights importance of small business in Detroit comeback

It’s game time, as newly appointed Detroit Emergency Manager Kevyn Orr said last week during his press conference and media interviews. But he’s already been working on his first few plays.

Orr said in a Friday interview with Crain’s that he will focus both on quick fixes — like improving police response times and fixing streetlights — and urgent financial matters — like restructuring the city’s long-term debt and stopping budget deficits.

He said he will be guided by data and will work tactically for fast change. He’s also seeking help from the business community.

“You want to bring all the data and information together and start developing a priorities list, or next steps, as far as what you need to do,” Orr said. “That process can occur pretty quickly.”

Under Public Act 436, Orr will have 45 days to construct a financial plan for the city. Local experts predict he’ll move to ease the suspicions of residents early in the process, while restructuring the city’s long-term debt obligations.

Eric Nemeth, partner at Varnum LLP in Novi, said Orr must operate like an emergency room doctor: Assess the problem, apply a tourniquet to stop the bleeding, and then fix the wound.

“It all sounds very much like housekeeping, but he needs to know who the players are and figure out how to keep the streetlights on and make sure police cars and fire trucks arrive,” Nemeth said. “He’s in a position where he can’t assume anything, including the core competencies of the city’s staff.”

Sheryl Toby, partner at Dykema Gossett PLLC and co-leader of its bankruptcy practice, said the EM role is so politically divisive that simply getting the city services in line will get residents and businesses on board for further action.

“Getting something like waste services working, making sure trash is getting picked up, is low-hanging fruit and it can show progress quickly,” Toby said. “Then he can work on the long-term goals of stopping residents from leaving and attracting business, along with restructuring the city’s long-term debt.”

For Orr, initial low-hanging fruit includes speeding up public safety response times, modernizing city technology and fixing streetlights.

Robert Bobb, president and CEO of the Washington, D.C.-based Robert Bobb Group LLC and former emergency financial manager for Detroit Public Schools, said Orr first needs to secure early victories — specifically related to public safety, trash, property tax collections and streetlights — so city residents can see tangible results.

But there will be no sacred cows.

“Everything should be on the table,” Bobb said.

Orr, who resigned as a partner at Jones Day in Washington, D.C., to pursue the Detroit post, was officially appointed EM on Thursday. He said in a Thursday press conference he was prepared for the “Olympics of restructuring.”

He’s already been through tough assignments; he was part of the Jones Day legal team that guided Chrysler LLC through its 2009 bankruptcy.

Orr said Friday that it’s too soon to tell if this new Olympiad will result in Chapter 9 bankruptcy for Detroit, even though some financial experts consider it a foregone conclusion.

“I’m not of the mind that anything is inevitable,” Orr said Friday.

Working together

Louis Schimmel, emergency financial manager for the city of Pontiac, said Orr will have to do significant consolidation of city departments and surround himself with experts willing to tackle the difficult work ahead.

And he is expected to make changes quickly; it’s widely expected Orr will serve no longer than 18 months.

He faces political opposition. Jim McTevia, managing member of Bingham Farms-based turnaround consulting firm McTevia Associates, said he believes Orr must end political infighting to accomplish his restructuring goals.

McTevia said Orr should work as closely with Detroit Mayor Dave Bing and the Detroit City Council as possible.

“I don’t care how good he is. If he is fought at every point, it will be difficult to be successful,” McTevia wrote in an email Thursday. “Think of him as a general. Generals don’t win battles without supporting troops.”

State Rep. Thomas Stallworth III, D-Detroit, and chairman of the Detroit Caucus, said Orr will face an adversarial resident base and that the city has made progress and is on a good trajectory for recovery without an EM.

“I’m concerned that an emergency manager will represent a real setback for our city,” he said.

Mike Duggan, a candidate running for Detroit mayor and former Wayne County Prosecutor and former CEO of Detroit Medical Center, said Orr made a very good impression during his initial remarks. Duggan was a classmate of Orr at the University of Michigan law school. But Duggan is opposed to the idea of an emergency manager and said, if elected, he would still ask Gov. Rick Snyder to relieve Orr of his duties on Jan. 1.

“I liked what I heard today, but he will be judged on how the finances are managed,” he said. “Whatever successes that Mr. Orr has, it will be my job to build on them.”

But Detroit City Council member Andre Spivey said in a statement that it’s time to move forward with support.

“I recognize there will be some uneasiness at first, but we must begin to turn our opposing opinions into positive actions and erase any thoughts or behaviors that may cause division in our community,” Spivey said. “This is newly charted territory for all of us.”

Orr said he wants to work with the council.

“It doesn’t do anyone any good to have conflict,” he said. “What’s the end game of that?”

Orr, who categorized himself as a “lifelong Democrat,” said he respects protestors’ viewpoints and their right to peacefully assemble “as long as it’s civil.”

“We are a country of laws, not of men, and those laws include the appointment of an emergency financial manager,” Orr said.

Stopping the financial bleed

The state’s financial review team last month said the city had a $327 million budget deficit last fiscal year and a cumulative cash deficit expected to swell above $100 million by June 30, the end of this fiscal year.

In addition, the city has nearly $15 billion in long-term debt.

Having a viable financial plan in place will make creditors more willing to negotiate with the city, said Bobb.

The emergency manager news has already made an impact; Standard Poor’s Ratings Services announced Friday that it had upgraded the city’s general obligation bond rating from negative to stable following Orr’s appointment.

Orr is expected to immediately reopen the city’s more than $8 billion in pension and retiree health care liabilities for negotiation, said Patrick O’Keefe, founder and CEO of Bloomfield Hills-based turnaround specialists O’Keefe and Associates Consulting LLC.

“Everything is on the table, everything’s possible,” Orr said.

The Chapter 9 card

Terry Conley, partner at Grant Thornton LLP‘s state and local tax practice in Southfield, said Detroit’s tax revenue stream simply isn’t enough to cover its debt obligations, and Chapter 9 is inevitable.

“This isn’t a cost-cutting exercise, it’s a revenue issue, and there’s only about 50 percent payment rate on the city’s property taxes,” Conley said. “Particularly with the politics that are going on, it’s going to make it even more difficult for the city to collect.”

If obstructionists in city government want to “fight over the deck rows on the Titanic,” said O’Keefe, the consequences — a municipal bankruptcy — could be dire.

“(Gov. Rick) Snyder is giving them a way out” with the appointment of an EM, O’Keefe said. “If they buck that, the city would be hard-pressed to borrow a nickel ever again.”